Proponents of Gateway Cities say development could improve economy

State officials say the success of Gateway Cities is key to strengthening Massachusetts' economy, but doing business in these underperforming areas often makes little financial sense.

In some cases, developers are unable to recover the cost of developing properties due to low rents and sale prices, according to a new report from MassINC, which has dedicated itself to strengthening Gateway Cities.

While a 1,200-square-foot home in Lowell would cost $241,420, it could only be sold for $151,200 or rented out for a profit of $37,750, according to the study. MassINC is advocating that the state invest $1.7 billion in these cities during the next decade to help bridge that gap.

By enticing construction projects with targeted subsidies, MassINC argues that the market can change.

In Fitchburg, the state gave the city a $1 million grant to build a park off River, Sheldon and Nockege streets. It led to a private developer to invest $18 million to convert a mill building across the river into private housing, said Mayor Lisa Wong.

"Just building a park across the river created an added value for the mill to be desirable so they could actually create a project that people would buy," Wong said. "These state investments are fairly small, but they lead to people investing millions of dollars into housing units.

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In Leominster, more than $1 million in grants during the past two years for the Comb & Carriage District helped fund sidewalks, paving, drainage and new sewer and water pipes, said Mayor Dean Mazzarella.

In Lowell, the success of the Ayer Lofts, a residential and retail space tailored toward artists that was completed in 2000, spawned further residential development in the city.

"No other project after that needed the same level of subsidy that one did," said Assistant City Manager Adam Baacke. "From that point up until the new great recession began, we were seeing project after project that needed less assistance than the one before."

Twenty-four cities are eligible for state grants and support for economic and community development as part of the Gateway Cities program. They have populations of more than 35,000 but less than 250,000, and median household incomes and rates of college education below the state average.

MassINC estimates its proposal could spawn close to $7 billion in total investment during the next 10 years and create 80,000 jobs. But it remains unclear if Massachusetts has the financial resources to deliver.

Secretary of Housing and Economic Development Gregory Bialecki said the state must first determine how much money it is currently investing in these 24 cities, which also include Lawrence, Haverhill and Springfield.

Bialecki noted that the state recently invested $25 million into Holyoke's Green High Performance Computer Center. The state put another $90 million toward a University of Massachusetts Medical School research facility in Worcester and plans to invest "tens of millions of dollars" in a new South Terminal port in New Bedford.

Large-scale projects, such as City Square in Worcester or the Hamilton Canal District in Lowell, a 15-acre mixed-use neighborhood, are other examples of the state's commitment to Gateway Cities, he said.

"If we ask ourselves which public investments are most likely to leverage private investment, it's not a guess," Bialecki said. "To me, one of the great ones is the UMass campuses. The UMass Medical school was transformative in Worcester. UMass Lowell, what Marty Meehan is doing up there now, is transformative for Lowell."

Bialecki acknowledged that finding additional money could be challenging due to the state's precarious financial situation. State revenue has fallen short of more optimistic projections, forcing Gov. Deval Patrick and legislative leaders to consider at least $540 million in mid-year cuts.

"We think the next step is, let's work with MassINC and others. Let's add up, between our capital programs, tax programs, how much we're investing in our Gateway Cities now," he said. "Then we'll have a conversation about whether we can get to where we need to be with current investments, or whether we need additional resources, as well."

Last year Gov. Deval Patrick rejected an effort to increase the number of Gateway Cities in Massachusetts, disappointing advocates who said the expansion would have helped communities hit hard by the recession. Bialecki said the state does not have the resources to expand the program by adding communities while maintaining its effectiveness.

The expansion would have lowered the population threshold to 20,000, paving the way for Gardner, Agawam, West Springfield and Randolph to become Gateway Cities.

Unemployment in Gateway Cities is traditionally higher than the state average. The unemployment rate in Lowell was 8.2 percent in December, for example, while the state's rate was 6.6 percent.

Despite funding challenges, state Sen. Ben Downing, D-Pittsfield, who co-chairs the Gateway Cities legislative caucus, said the report is an important step in determining what the best financial tools are to spur economic growth in these areas of the state.

The report also calls for the creation of a $100 million revolving loan fund to support construction with low- or no-interest financing; $20 million a year in additional funding for the MassWorks grant program; $2.5 million to train and hire five professionals to serve in Gateway City economic development agencies; changes to the Business Improvement District statute; and $150,000 to collect and analyze public resale and market data to understand trends and the impact of state investments.

The report also proposes the coordination of economic development programs to foster growth in Gateway Cities, using existing grant programs to target anchor tenants for downtowns, increase by $2 million cultural district grants, and dedicate $75 million from the higher education capital budget to create three satellite UMass campuses.

"When we look back on our Gateway Cities 20 to 30 years from now, we are not looking at the opportunities we missed, we are looking at how we put the stake in the ground to ensure future generations have the opportunity to live in the community the grew up in," said Downing.

Coming Monday: If the MassINC plan comes to fruition, how do Gateway Cities see their future?

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